For Holdout Renters, Condo Conversions Can Be Messy

In New York, elbowing aside others to make money in real estate is as old as the founding of the city itself.

And for every rental building that has been converted to a co-op or condominium over the years, there have been tenants who have felt the sharp jab.

This time around, with apartment sales on the upswing and the number of rent-regulated tenants on the decline, many of the buildings that developers are converting from rental to condo are large and located in areas that are pricey and desirable. And unlike the 1980s, when scores of buildings were converted to co-ops, the fabulous insider deal no longer exists.

But some things remain constant. Those who insist on hanging on to their rental apartments can expect a noisy, dusty mess. “This is one of the hairiest times for renters that I’ve seen in my career,” said Kevin R. McConnell, a real estate lawyer who has focused on tenants’ rights since the 1980s. “There’s tremendous upheaval in the market.”

To their defenders, conversions are hardly an across-the-board bogeyman. They note that many renters move away after a few years anyway, as part of the natural ebb and flow of buildings. Still others, they say, wind up with fancy condos purchased at a discount. And the renters who remain often benefit from spiffed-up facades, upgraded swimming pools and new elevators.

As for construction clatter while a building is undergoing a makeover? Just another annoyance, they say, in a city that shrieks with car alarms and sirens.

But tenants in general are feeling more pain than in the past. Complaints about harassment, lack of heat and rent increases are rising, according to several government organizations that track them. And local government officials are taking notice; last month, a new joint city and state task force was created to crack down on landlords using disruptive renovations to push tenants out of rent-regulated homes.

“To take a building like this and do what they have done is horrible,” said Avra Petrides, a renter at the Evelyn at 101 West 78th Street since 1958, referring to the number of interior walls that have been removed at the building, whose exterior is a designated landmark.

The copper-red 1886 building, which is among the city’s oldest apartment houses, is being converted to a condo by Newcastle Realty Services, with GTIS Partners, an investment firm. At least it was being converted until the state attorney general halted the project in January over concerns that tenants may have been given the boot illegally.

Ms. Petrides, who is in her late 70s, lives in one of the 11 apartments that are still occupied in the building, which originally had 44 units. Newcastle wants to reduce the number of apartments to 24 to create roomier units, according to design plans.

broken window building vandalized“Suddenly, I was living in a dust bowl,” said Ms. Petrides, an actress and playwright whose two-bedroom, with parquet floors and a pair of fireplaces, is rent-controlled, at about $830 a month — a rent that many would consider tantamount to winning the lottery. Rent-controlled apartments have a rent that is generally the lowest in the rent-regulated category.

Rent-regulated tenants are strongly protected against eviction. They can be forced out if a building is being demolished, but they can’t be thrown to the curb in a conversion. All renters are entitled to have first dibs on buying their homes, and they also have months to mull over the decision. If rent-regulated tenants decide to stay, they are supposed to have the same livable space as before. But Newcastle appears to have violated a few rules at the Evelyn, according to the attorney general’s office, in that it may have induced people to leave well before the conversion plan was made official or before they had a chance to consider whether they wanted to buy there.

According to court papers, both rent-regulated and market-rate tenants were cleared out before the developers had the official O.K. to put apartments on the market, which is illegal.

Ms. Petrides received a conversion plan that priced her unit at $2.5 million. This may not have been much of an inside bargain: Last week, two-bedroom condos on the Upper West Side were listed at an average of $2.7 million, according to StreetEasy.com

Ms. Petrides said she has not been given a buyout offer, which the developer is not required to make. “I love the apartment and have been here a very long time,” she said. “But if a proper amount of money were offered, I would consider it.” All told, 10 market-rate tenants received buyouts, according to court documents, as well as five rent-regulated units. Residents said that the offers ranged from $40,000 to $100,000, although some said they could not speak because of nondisclosure agreements.

Newcastle “engaged in what can only be a deliberate campaign to deceive the tenants at 101 West 78th Street and to move them out of the building as quickly as possible,” prosecutors said in court documents. The investigation is ongoing, a spokeswoman for the attorney general said.

In the meantime, the building, which has a large “Hard Hat Area” sign hanging inside its front door, has a rough work-in-progress ambience. In early March, there were several open building code violations at the site, according to Department of Buildings records, including seven for Class 1 violations, for immediately hazardous conditions. Separately, Newcastle has also been cited for improper asbestos removal.

Margaret Streicker Porres, Newcastle’s president, declined to comment, “since this is an ongoing legal matter,” according to an email from George Arzt, a spokesman.

Complaints about overall tenant harassment appear to be escalating in New York, although it is difficult to know how many are from renters displaced or inconvenienced by conversions and how many are, say, routine heat or water problems.

In the fiscal year that ended in 2013, the city’s housing court received 752 harassment complaints, Mayor Bill de Blasio said last month at a news conference. This year, as of mid-February, 426 complaints have been made, he said.

The number of condo conversions has been relatively steady in recent years. At the height of the last construction boom in 2007, 20 rental buildings inManhattan gave way to condos, according to an analysis of filings provided by the attorney general’s office. In 2013, 14 similar conversions took place, with others pending approval, and in 2014, 15 were planned.

Today’s conversions are concentrated in prime neighborhoods, often in large, well-known buildings. But in 2007, about 50 percent of the projects were way uptown, in Harlem or Washington Heights. By 2013, however, only about 20 percent were in those northern Manhattan neighborhoods, with the balance in places like the Upper West Side, Gramercy Park and Midtown.

Over the years, developers have found it easier to convert rental buildings. Changes to housing laws in the 1990s made deregulation easier. Citywide, 256,952 apartments have left the rent-regulation program since 1994, according to a report last year from the New York City Rent Guidelines Board. And even though rent-regulated units have also been created along the way, the report said, there has almost always been a net decrease each year.

But while there may be more apartments to buy, they’re not coming as affordable as they once did.

During the wave of rental-to-co-op conversions in the 1980s, the “insider price” offered to tenants could be as little as 50 percent of the market price. Developers needed to fill a certain number of apartments in their buildings to qualify for conversions, and offering discounted units to current renters was a surefire way of doing so. Renters sometimes banded together to hold out for a lower price.

In today’s white-hot sales market, though, there’s much less risk that units will go unsold, and so steep discounts are not as necessary.

At Carnegie Park, a brick 1980s rental going condo at 200 East 94th Street and Third Avenue, the discount rate is about 10 percent, according to the Related Companies, the building’s developer.

But that still puts the price way out of reach, said a tenant who asked to remain anonymous for fear of being put on a blacklist. The tenant said that he could not afford the $1.9 million asking price for his three-bedroom, for which he pays $7,000 a month in rent. He can’t stay in the 30-story building, because all the apartments are market rate and the Related Companies has allowed leases to expire.

The tenant, who will decamp to a smaller apartment elsewhere this month, said in some ways he is happy to go. For two years, while construction proceeded, he said, the inconveniences included having to use a service entrance when the lobby was closed, water shut-offs and a disconnected stove. Related offered a plug-in cooktop as a substitute, but never offered any sort of rent discount, the tenant said.

“It breaks my heart; I really felt trapped,” he said. “There is no respect or appreciation for the people who live here.”

A “handful” of renters, however, had purchased apartments in the building by early March, said Vanessa Morin, a spokeswoman for the project, with more expected by a deadline this spring.

Ms. Morin added that while Related did not discount rents, tenants could move to other Related rentals, or anywhere else for that matter, without penalties for breaking their leases.

Housing advocates are on guard about situations in which construction noise and mess compromises the “warranty of habitability” that is a tenant’s right.

“Harassment can play out subtly,” said Benjamin Dulchin, the executive director of the Association for Neighborhood and Housing Development, an advocacy group. “A pattern can add up that tenants are really not welcome. It can create this subtle pressure that pushes tenants out.”

In February, the offices of the governor, the attorney general and the mayor formed the Tenant Harassment Prevention Task Force, which “will confront the rise in complaints that landlords are using a variety of tactics, including disruptive and dangerous renovation and construction projects, to force tenants into vacating rent-regulated apartments,” according to a statement.

And that crackdown could involve criminal charges, said Eric T. Schneiderman, the state attorney general.

The move follows the 2012 creation of the Tenant Protection Unit at the state’s Division of Housing and Community Renewal, which investigates similar issues. So far, the unit has re-regulated more than 37,000 unlawfully deregulated apartments.

But legal action is no guarantee of good results. Since 1985, Jessica Burstein has rented an apartment at 11 East 68th Street, a 1913 building at Madison Avenue known as the Marquand. There, the HFZ Capital Group, teamed with Vornado Realty Trust, is turning a 41-unit rental into a condo with about 25 units.

In 2012, according to Ms. Burstein, HFZ offered her $250,000 to move out of her two-bedroom two-bath rent-stabilized apartment, for which she was paying about $2,300 a month.

In a borough where the average two-bedroom now leases for close to $4,000 a month, according to the Corcoran Group, that money would have covered about five years of rent somewhere else. Ms. Burstein, who works as a photographer, declined.

As the renovation got underway, conditions quickly deteriorated, she said. Heat at the building, which has a temporary boiler set up at the curb, was intermittent. Mice showed up. And one day, a drill punctured her bedroom wall.

After Ms. Burstein threatened to sue, she said, HFZ temporarily relocated her in summer 2013 to a building called the Chatsworth, a Beaux-Arts complex at 344 West 72nd Street. HFZ paid for the move and picks up the rent at the Chatsworth; it also stopped collecting rent for her place at the Marquand.

But for Ms. Burstein, the move was in many ways a case of going from the frying pan to the fire. That’s because HFZ is also converting the Chatsworth to a condo, and the noise is so loud that Ms. Burstein has to wear headphones to work in her apartment. And what was supposed to be a temporary visit has turned into a 19-month stay, “with no end in sight,” she said.

In the meantime, Ms. Burstein and HFZ have tangled over pipes that were run through her original apartment and covered by bumped-out walls, making the livable space smaller, she said. There was also damage to a bathroom. Last fall, she sued HFZ over those alterations.

Although a judge allowed the pipes to stay, Ms. Burstein said, she is negotiating to have the developer repair the bathroom. She also seeks to have an office reconfigured, because her photograph printer will no longer fit in the rejiggered room. Over the course of those talks, she said, HFZ offered to buy her out for $1 million, which she declined.

Apartments at the Marquand have sold for between $14 million and $22 million since HFZ bought the building in 2012, according to StreetEasy. About 17 of the 25 planned units are in new hands.

In the end, Ms. Burstein said she just wants to move back to the Marquand and continue renting there. As to the $1 million she said she was offered: “I’m not saying that’s not a great deal of money — it is. But the reality is, I need a home and I’m not ready to leave New York.”

One of today’s more prolific converters, HFZ, which declined to comment through a spokeswoman, is working on or has plans for about a half-dozen condo projects in Manhattan, including Nos. 90 and 88 Lexington Avenue, by Gramercy Park, as well as 301 West 53rd Street, a brick postwar tower in Midtown.

HFZ is also planning to convert the Belnord Apartments, a rental with about 200 units at 225 West 86th Street, according to an HFZ spokeswoman, though the company’s purchase of the building has not yet closed, according to city records.

Its appeal may be obvious: A decade ago, more than five dozen tenants — about a third of the building — gave up their rent-regulated status as part of an unusual deal to avoid shouldering the cost of building repairs, and are now in market-rate apartments.

For those rent-regulated tenants who are determined to be holdouts in converted rentals, rough patches may await. At the Chatsworth, for instance, most renters won’t have the air-conditioning enjoyed by apartment owners. And the dust flying at the building, a co-op that began sales in January, has led to sinus infections, said Naomi Greenberg, 59. She said she has had to wash her dishes in a bathtub because of a regular lack of hot water at her sink.

She would move if she could, added Ms. Greenberg, a chef, nanny and college student. But HFZ will not pay her the $750,000 she thinks her rent-stabilized lease is worth, she said. Buying her two-bedroom for $1.775 million is not in the cards, Ms. Greenberg said, considering that she makes about $50,000 a year.

In the meantime, she’s enlisted Adam Leitman Bailey, a real estate lawyer who has sued many major developers including Related, the Extell Development Company and the Trump Organization, to investigate suing HFZ for harassment.

“I’ve decided to stay and buckle down,” Ms. Greenberg said.

Source: NYTimes.com